ProjectBridging the gap between Gas Emissions and geophysical observations at active volcanoes

Researcher (PI)Alessandro Aiuppa

Host Institution (HI)UNIVERSITA DEGLI STUDI DI PALERMO

Call DetailsStarting Grant (StG), PE10, ERC-2012-StG_20111012

SummaryIn spite of their significance in a variety of volcanological aspects, gas observations at volcanoes have lagged behind geophysical studies for a long time. This has primarily reflected the inherent technical limitations met by gas geochemists in capturing volcanic gas properties (chemistry and flux) at high-rate (1 Hz), and using permanent instrumental arrays. The poor temporal resolution of volcanic gas observations has, in addition, precluded the real-time analysis of fast-occurring volcanic processes, as those occurring shortly prior to eruptions, therefore generally limiting the use of gas geochemistry in volcanic hazard assessment. However, the recent progresses made by modern multi-component/high frequency measurement techniques now open the way for decisive step ahead in the current state-of-the-art to be finally attempted.
The BRIDGE research proposal has the ambitious goals to bridge the existing technological gap between geochemical and geophysical observations at volcanoes. This will be achieved by designing, setting up, and deploying in the field, innovative instruments for 1 Hz observations of volcanic SO2 and CO2 fluxes. From this, the co-acquired volcanic gas and geophysical information will be then combined within a single interpretative framework, therefore contributing to fill our current gap of knowledge on fast (timescales of seconds/minutes) degassing processes, and to deeper exploration of the role played by gas exsolution from (and migration through) silicate liquids as effective source mechanism of the physical signals (e.g., LP and VLP seismicity, and tremor) measured at volcanoes. Finally, this combined volcanic gas-geophysical approach will be used to yield improved modelling/understanding of a variety of volcanic features, including modes/rates of gas separation from magmas, mechanisms of gas flow in conduits, and trigger mechanisms of explosive volcanic eruptions.

In spite of their significance in a variety of volcanological aspects, gas observations at volcanoes have lagged behind geophysical studies for a long time. This has primarily reflected the inherent technical limitations met by gas geochemists in capturing volcanic gas properties (chemistry and flux) at high-rate (1 Hz), and using permanent instrumental arrays. The poor temporal resolution of volcanic gas observations has, in addition, precluded the real-time analysis of fast-occurring volcanic processes, as those occurring shortly prior to eruptions, therefore generally limiting the use of gas geochemistry in volcanic hazard assessment. However, the recent progresses made by modern multi-component/high frequency measurement techniques now open the way for decisive step ahead in the current state-of-the-art to be finally attempted.
The BRIDGE research proposal has the ambitious goals to bridge the existing technological gap between geochemical and geophysical observations at volcanoes. This will be achieved by designing, setting up, and deploying in the field, innovative instruments for 1 Hz observations of volcanic SO2 and CO2 fluxes. From this, the co-acquired volcanic gas and geophysical information will be then combined within a single interpretative framework, therefore contributing to fill our current gap of knowledge on fast (timescales of seconds/minutes) degassing processes, and to deeper exploration of the role played by gas exsolution from (and migration through) silicate liquids as effective source mechanism of the physical signals (e.g., LP and VLP seismicity, and tremor) measured at volcanoes. Finally, this combined volcanic gas-geophysical approach will be used to yield improved modelling/understanding of a variety of volcanic features, including modes/rates of gas separation from magmas, mechanisms of gas flow in conduits, and trigger mechanisms of explosive volcanic eruptions.

Max ERC Funding

1 496 222 €

Duration

Start date: 2012-10-01, End date: 2016-09-30

Project acronymCIDAM

ProjectConflict, Identity and Markets

Researcher (PI)Eliana La Ferrara

Host Institution (HI)UNIVERSITA COMMERCIALE LUIGI BOCCONI

Call DetailsStarting Grant (StG), SH1, ERC-2007-StG

SummaryThe developing world has been plagued by many civil conflicts in the past thirty years. Understanding the roots and the consequences of these conflicts is crucial to fight poverty. This project will take an economic approach to investigate the interplay between cultural, political and economic determinants of conflict in poor countries. I will assess the role of domestic and international factors. Domestic factors include variables such as cultural identity, income inequality, resource endowments and geography. I will re-examine the role of ethnic diversity using original multi-dimensional indicators. These take into account that the salience of ethnic identity may depend on how much it overlaps with categories based on income, education, etc. I will also re-assess the role of natural resource abundance from a theoretical and empirical standpoint. I will develop a theory of how rebel groups are organized drawing on the theory of incentives and test it using detailed geographic information on the location of mineral deposits in Africa. I will also analyze the role of international players using a methodology based on financial markets’ reactions to news. This methodology will allow me to address questions such as: Which companies gain or lose from violent conflict? How can we detect violations of international embargoes? What are the private incentives of complying with international norms, i.e. can reputation costs be quantified? These are questions of paramount importance from a policy perspective and on which almost no academic research exists in economics. Overall, the project should help integrate economic, social and political explanations for the occurrence of conflict in developing countries. I expect that its outcome should comprise the creation of new datasets, propose new methodological tools and offer some insights for designing economic policies to prevent conflict and fight poverty.

The developing world has been plagued by many civil conflicts in the past thirty years. Understanding the roots and the consequences of these conflicts is crucial to fight poverty. This project will take an economic approach to investigate the interplay between cultural, political and economic determinants of conflict in poor countries. I will assess the role of domestic and international factors. Domestic factors include variables such as cultural identity, income inequality, resource endowments and geography. I will re-examine the role of ethnic diversity using original multi-dimensional indicators. These take into account that the salience of ethnic identity may depend on how much it overlaps with categories based on income, education, etc. I will also re-assess the role of natural resource abundance from a theoretical and empirical standpoint. I will develop a theory of how rebel groups are organized drawing on the theory of incentives and test it using detailed geographic information on the location of mineral deposits in Africa. I will also analyze the role of international players using a methodology based on financial markets’ reactions to news. This methodology will allow me to address questions such as: Which companies gain or lose from violent conflict? How can we detect violations of international embargoes? What are the private incentives of complying with international norms, i.e. can reputation costs be quantified? These are questions of paramount importance from a policy perspective and on which almost no academic research exists in economics. Overall, the project should help integrate economic, social and political explanations for the occurrence of conflict in developing countries. I expect that its outcome should comprise the creation of new datasets, propose new methodological tools and offer some insights for designing economic policies to prevent conflict and fight poverty.

Max ERC Funding

429 480 €

Duration

Start date: 2008-06-01, End date: 2013-05-31

Project acronymCODEC

ProjectConsequences of Demographic Change

Researcher (PI)Arnstein Aassve

Host Institution (HI)UNIVERSITA COMMERCIALE LUIGI BOCCONI

Call DetailsStarting Grant (StG), SH1, ERC-2007-StG

SummaryThe project will be using the Gender and Generations Surveys (GGS) – a system of comparable micro-level surveys for several Developed countries – to analyse the consequences of demographic change. The analysis will be using households and individuals as the unit of observation. As a result, we will be able to make inferences about how certain demographic behaviours (i.e. childbearing, marital disruption, single motherhood, leaving home), including their timing and sequencing, affect certain outcomes, such as income, poverty, deprivation, together with various child outcomes. This analysis is particularly relevant given recent demographic trends in developed countries (e.g. divorce rates are increasing, out-of-wedlock childbearing is becoming more prevalent, and general delay in key demographic events such as childbearing and leaving the parental home). The novelty of the study is driven by its focus on consequences of newly emerging demographic patterns and behaviour, which is in contrast to the majority of previous demographic studies – which has tended to focus on the determinants behind these trends. Policy analysis has not had a strong tradition in Demography and the aim of this project is to rectify this shortcoming of the discipline. By focusing on the consequences of demographic change and using techniques that are borrowed from program evaluation, econometrics, applied statistics and empirical sociology, we aim to advance the understanding of how demographic events impact other important processes in the life course of individuals and how policy makers can best influence such outcomes by appropriate policy interventions.

The project will be using the Gender and Generations Surveys (GGS) – a system of comparable micro-level surveys for several Developed countries – to analyse the consequences of demographic change. The analysis will be using households and individuals as the unit of observation. As a result, we will be able to make inferences about how certain demographic behaviours (i.e. childbearing, marital disruption, single motherhood, leaving home), including their timing and sequencing, affect certain outcomes, such as income, poverty, deprivation, together with various child outcomes. This analysis is particularly relevant given recent demographic trends in developed countries (e.g. divorce rates are increasing, out-of-wedlock childbearing is becoming more prevalent, and general delay in key demographic events such as childbearing and leaving the parental home). The novelty of the study is driven by its focus on consequences of newly emerging demographic patterns and behaviour, which is in contrast to the majority of previous demographic studies – which has tended to focus on the determinants behind these trends. Policy analysis has not had a strong tradition in Demography and the aim of this project is to rectify this shortcoming of the discipline. By focusing on the consequences of demographic change and using techniques that are borrowed from program evaluation, econometrics, applied statistics and empirical sociology, we aim to advance the understanding of how demographic events impact other important processes in the life course of individuals and how policy makers can best influence such outcomes by appropriate policy interventions.

Max ERC Funding

750 000 €

Duration

Start date: 2008-07-01, End date: 2013-06-30

Project acronymESEARCH

ProjectDirect Empirical Evidence on Labor Market Search Theories

Researcher (PI)Thomas LE BARBANCHON

Host Institution (HI)UNIVERSITA COMMERCIALE LUIGI BOCCONI

Call DetailsStarting Grant (StG), SH1, ERC-2017-STG

SummaryOur project proposes to provide new empirical evidence on the search strategies of both job seekers and of recruiters in the labor market. This evidence will enhance our understanding of the information asymmetries at the root of search frictions.
We will leverage the extraordinary opportunities offered by online job boards, which record search activities in details. We will match for the first time these data with administrative data from unemployment-employment registers. This will enable us to jointly observe search activity and core economic outcomes (wage, job duration) on very large samples.
We will design randomized controlled trials, where we recommend new matches to both job seekers and recruiters. This will test for the extent of geographical and skill mismatch in the labor market. We will further test the assumptions of directed search models by displaying to job seekers the real-time length of the queue in front of vacancies. Finally, we will use new item-to-item collaborative filtering algorithms (amazon-type recommendations) to quantify the social value of the private information that job seekers gather when they screen vacancies.
Using quasi-experimental research designs, we will provide the first precise estimates of the direct and cross effects of search subsidies - unemployment insurance and reduction in vacancy advertising costs - on the search strategies of both sides of the market. We will then test the empirical relevance of behavioral mechanisms, such as reference-dependence or over-optimism.
We expect our direct empirical evidence on search strategies to trigger new developments in search theories. Our results will guide policy-makers who design job boards and search subsidies to both recruiters and job seekers. We hope that the social impact of our research will be to reduce frictional unemployment and to increase the productivity of workers through a reduction of mismatch in the labor market.

Our project proposes to provide new empirical evidence on the search strategies of both job seekers and of recruiters in the labor market. This evidence will enhance our understanding of the information asymmetries at the root of search frictions.
We will leverage the extraordinary opportunities offered by online job boards, which record search activities in details. We will match for the first time these data with administrative data from unemployment-employment registers. This will enable us to jointly observe search activity and core economic outcomes (wage, job duration) on very large samples.
We will design randomized controlled trials, where we recommend new matches to both job seekers and recruiters. This will test for the extent of geographical and skill mismatch in the labor market. We will further test the assumptions of directed search models by displaying to job seekers the real-time length of the queue in front of vacancies. Finally, we will use new item-to-item collaborative filtering algorithms (amazon-type recommendations) to quantify the social value of the private information that job seekers gather when they screen vacancies.
Using quasi-experimental research designs, we will provide the first precise estimates of the direct and cross effects of search subsidies - unemployment insurance and reduction in vacancy advertising costs - on the search strategies of both sides of the market. We will then test the empirical relevance of behavioral mechanisms, such as reference-dependence or over-optimism.
We expect our direct empirical evidence on search strategies to trigger new developments in search theories. Our results will guide policy-makers who design job boards and search subsidies to both recruiters and job seekers. We hope that the social impact of our research will be to reduce frictional unemployment and to increase the productivity of workers through a reduction of mismatch in the labor market.

Max ERC Funding

1 250 250 €

Duration

Start date: 2018-04-01, End date: 2023-03-31

Project acronymFINIMPMACRO

ProjectFinancial Imperfections and Macroeconomic Implications

Researcher (PI)Tommaso Monacelli

Host Institution (HI)UNIVERSITA COMMERCIALE LUIGI BOCCONI

Call DetailsStarting Grant (StG), SH1, ERC-2011-StG_20101124

SummaryWe plan to study the implications of financial market imperfections for four main questions.
First, how do financial imperfections affect the optimal conduct of monetary and exchange rate policy in open economies? A key insight is that we characterize financial frictions as endogenous and only occasionally binding. This can have important implications for the optimal conduct of stabilization policy.
Second, how do financial and labor market imperfections interact? We extend the standard search-and-matching model to allow firms to issue debt. This feature affects the wage bargaining process endogenously, since firms, by leveraging, can pay lower wages. We study the ability of such a model to replicate the volatility and persistence of unemployment in the data, and the role of financial imperfections in affecting the transmission of productivity and financial shocks.
Third, does the effectiveness of tax policy depend on its redistributive content, and how is this affected by financial imperfections? We characterize the distributional feature of several Tax Acts in the US, and investigate empirically whether tax changes that “favor the poor” are more expansionary than cuts that “favor the rich”. We then build a theoretical framework with heterogeneous agents and financial frictions to rationalize our evidence.
Fourth, how do financial intermediaries affect the transmission channel of monetary policy? We extend the current New Keynesian framework for monetary policy analysis to study the role of financial intermediaries. We emphasize the role of three features: (i) asymmetric information in interbank markets; (ii) maturity mismatch in the banks’ balance sheets; (iii) the “paradox of securitization”, thereby a deeper diversification of idiosyncratic risk leads to a simultaneous increase in the sensitivity of banks’ balance sheets to aggregate risk.

We plan to study the implications of financial market imperfections for four main questions.
First, how do financial imperfections affect the optimal conduct of monetary and exchange rate policy in open economies? A key insight is that we characterize financial frictions as endogenous and only occasionally binding. This can have important implications for the optimal conduct of stabilization policy.
Second, how do financial and labor market imperfections interact? We extend the standard search-and-matching model to allow firms to issue debt. This feature affects the wage bargaining process endogenously, since firms, by leveraging, can pay lower wages. We study the ability of such a model to replicate the volatility and persistence of unemployment in the data, and the role of financial imperfections in affecting the transmission of productivity and financial shocks.
Third, does the effectiveness of tax policy depend on its redistributive content, and how is this affected by financial imperfections? We characterize the distributional feature of several Tax Acts in the US, and investigate empirically whether tax changes that “favor the poor” are more expansionary than cuts that “favor the rich”. We then build a theoretical framework with heterogeneous agents and financial frictions to rationalize our evidence.
Fourth, how do financial intermediaries affect the transmission channel of monetary policy? We extend the current New Keynesian framework for monetary policy analysis to study the role of financial intermediaries. We emphasize the role of three features: (i) asymmetric information in interbank markets; (ii) maturity mismatch in the banks’ balance sheets; (iii) the “paradox of securitization”, thereby a deeper diversification of idiosyncratic risk leads to a simultaneous increase in the sensitivity of banks’ balance sheets to aggregate risk.

SummaryEarthquakes are potentially catastrophic phenomena that have a huge impact on the environment and society. Understanding the physical processes responsible for earthquakes and faulting requires high quality data and direct observations of the underlying phenomena. However, no direct measurements can be made at depth where earthquakes initiate and propagate. Our knowledge of the mechanical properties of fault zones relies on Earth surface observations and experiments conducted in rock deformation laboratories. Despite recent progress, we have much to learn about the mechanics of earthquakes and the complex and inherently scale-dependent processes that govern earthquake faulting.
Central Italy is a unique test site that can serve as a natural laboratory for the integration of high resolution data gathered from different disciplines. I propose to develop my innovative and multidisciplinary research to unravel the physico-chemico processes responsible for faulting phenomena ranging from aseismic creep to seismic slip. GLASS will aim to:
(i) locate and analyze different types of transient seismic signals from the actively deforming crust, such as fast/slow and high/low frequency earthquakes and non volcanic tremors;
(ii) study deformation processes in outcrops of ancient faults that represent exhumed analogues of the active structures today;
(iii) characterize the fluid flow and frictional properties of faults in rock deformation experiments;
(iv) investigate earthquake nucleation and recurrence by developing numerical models that will be constrained by field and experimental data and calibrated by seismological records.
The proposed research will allow to create unprecedented insight into the mechanics of earthquakes and to investigate deformation processes from the crustal to the nano-scale and from a time window ranging from the seismic cycle to entire geologic fault history.

Earthquakes are potentially catastrophic phenomena that have a huge impact on the environment and society. Understanding the physical processes responsible for earthquakes and faulting requires high quality data and direct observations of the underlying phenomena. However, no direct measurements can be made at depth where earthquakes initiate and propagate. Our knowledge of the mechanical properties of fault zones relies on Earth surface observations and experiments conducted in rock deformation laboratories. Despite recent progress, we have much to learn about the mechanics of earthquakes and the complex and inherently scale-dependent processes that govern earthquake faulting.
Central Italy is a unique test site that can serve as a natural laboratory for the integration of high resolution data gathered from different disciplines. I propose to develop my innovative and multidisciplinary research to unravel the physico-chemico processes responsible for faulting phenomena ranging from aseismic creep to seismic slip. GLASS will aim to:
(i) locate and analyze different types of transient seismic signals from the actively deforming crust, such as fast/slow and high/low frequency earthquakes and non volcanic tremors;
(ii) study deformation processes in outcrops of ancient faults that represent exhumed analogues of the active structures today;
(iii) characterize the fluid flow and frictional properties of faults in rock deformation experiments;
(iv) investigate earthquake nucleation and recurrence by developing numerical models that will be constrained by field and experimental data and calibrated by seismological records.
The proposed research will allow to create unprecedented insight into the mechanics of earthquakes and to investigate deformation processes from the crustal to the nano-scale and from a time window ranging from the seismic cycle to entire geologic fault history.

Max ERC Funding

1 514 400 €

Duration

Start date: 2010-10-01, End date: 2015-09-30

Project acronymINDIMEDEA

ProjectInclusions in diamonds: messengers from the deep Earth

Researcher (PI)Fabrizio Nestola

Host Institution (HI)UNIVERSITA DEGLI STUDI DI PADOVA

Call DetailsStarting Grant (StG), PE10, ERC-2012-StG_20111012

SummaryDiamonds and their inclusions are the deepest materials originating from the Earth’s interior reaching the surface of our planet. Their study plays a key role in understanding and interpreting the geodynamics, geophysics, petrology, geochemistry and mineralogy of the Earth’s mantle and those processes which governed trough the time the evolution of the Earth. The most abundant mineral inclusions in diamonds are olivines, orthopyroxenes, clinopyroxenes, garnets, spinels, and sulfides. All of these mineral phases have been identified by X-ray diffraction or electron microprobe analysis since the 1950’s almost always after their extraction from the diamonds. However, a non-destructive in-situ investigation of an inclusion in diamond is useful and important because: (a) some mineral inclusions under pressure could have a different crystal structure, and thus different petrologic significance compared to that at ambient pressure; (b) the internal pressure on the inclusion can provide information about the formation pressure of the diamond; (c) the morphology and growth relationships of the inclusion with the host diamond can provide indications about its protogenetic vs. syngenetic and/or epigenetic nature.
In this project a new experimental approach, based on X-ray diffraction technique, will be used in order to determine, for the first time, the crystal structure of the inclusions still trapped in their host diamonds allowing to obtain chemical information capable to provide the inclusion remnant pressure and, from this, the pressure of formation of the diamond-inclusion pair. At the same time, our approach will allow to obtain any possible epitaxial relationship between diamond and its inclusions in order to provide strong constraints about the syngenetic or protogenetic nature of minerals included in diamond solving a 50 years old debate. Several geochemical and geodynamical models are based on the assumption of syngenesis but this has yet to be demonstrated.

Diamonds and their inclusions are the deepest materials originating from the Earth’s interior reaching the surface of our planet. Their study plays a key role in understanding and interpreting the geodynamics, geophysics, petrology, geochemistry and mineralogy of the Earth’s mantle and those processes which governed trough the time the evolution of the Earth. The most abundant mineral inclusions in diamonds are olivines, orthopyroxenes, clinopyroxenes, garnets, spinels, and sulfides. All of these mineral phases have been identified by X-ray diffraction or electron microprobe analysis since the 1950’s almost always after their extraction from the diamonds. However, a non-destructive in-situ investigation of an inclusion in diamond is useful and important because: (a) some mineral inclusions under pressure could have a different crystal structure, and thus different petrologic significance compared to that at ambient pressure; (b) the internal pressure on the inclusion can provide information about the formation pressure of the diamond; (c) the morphology and growth relationships of the inclusion with the host diamond can provide indications about its protogenetic vs. syngenetic and/or epigenetic nature.
In this project a new experimental approach, based on X-ray diffraction technique, will be used in order to determine, for the first time, the crystal structure of the inclusions still trapped in their host diamonds allowing to obtain chemical information capable to provide the inclusion remnant pressure and, from this, the pressure of formation of the diamond-inclusion pair. At the same time, our approach will allow to obtain any possible epitaxial relationship between diamond and its inclusions in order to provide strong constraints about the syngenetic or protogenetic nature of minerals included in diamond solving a 50 years old debate. Several geochemical and geodynamical models are based on the assumption of syngenesis but this has yet to be demonstrated.

Max ERC Funding

1 423 464 €

Duration

Start date: 2013-01-01, End date: 2018-12-31

Project acronymINST&GLOB

ProjectInstitutions and Globalization

Researcher (PI)Nicola Gennaioli

Host Institution (HI)UNIVERSITA COMMERCIALE LUIGI BOCCONI

Call DetailsStarting Grant (StG), SH1, ERC-2009-StG

SummaryEconomists have recently shown that developed economies rely on proper institutions for securing property rights, resolving disputes, etc. Scholars have studied the consequences of alternative legal and political institutions, but much remains to be done. One important and unexplored territory concerns the analysis of how national institutions interact in the international arena. This proposal seeks to study this problem from two perspectives. First, how does the quality of a country s national institutions affect its gains from international integration? Second, how does international integration affect a country s institutional reform path? We address the first question by studying, both theoretically and empirically, the impact of national institutions on sovereign risk, where the latter is defined as the risk that a government unilaterally decides ex-post not to honor its financial obligations with foreigners. While the impact of national institutions on private capital flows has been studied, the role of these same institutions on supporting government debt has so far received scant attention. As for the second question, we study the impact of political and financial integration on countries institutional reform. We model two different motivations towards institutional change in an integrated world: a) direct confrontation in wars and b) competition through world financial markets. The general thrust of these analyses is that institutional reform becomes a strategic variable in international competition, creating cross-country externalities that can shed light on observed episodes of institutional converge or divergence. We also consider the role of institutional harmonization in supporting economic integration.

Economists have recently shown that developed economies rely on proper institutions for securing property rights, resolving disputes, etc. Scholars have studied the consequences of alternative legal and political institutions, but much remains to be done. One important and unexplored territory concerns the analysis of how national institutions interact in the international arena. This proposal seeks to study this problem from two perspectives. First, how does the quality of a country s national institutions affect its gains from international integration? Second, how does international integration affect a country s institutional reform path? We address the first question by studying, both theoretically and empirically, the impact of national institutions on sovereign risk, where the latter is defined as the risk that a government unilaterally decides ex-post not to honor its financial obligations with foreigners. While the impact of national institutions on private capital flows has been studied, the role of these same institutions on supporting government debt has so far received scant attention. As for the second question, we study the impact of political and financial integration on countries institutional reform. We model two different motivations towards institutional change in an integrated world: a) direct confrontation in wars and b) competition through world financial markets. The general thrust of these analyses is that institutional reform becomes a strategic variable in international competition, creating cross-country externalities that can shed light on observed episodes of institutional converge or divergence. We also consider the role of institutional harmonization in supporting economic integration.

Max ERC Funding

1 002 000 €

Duration

Start date: 2009-09-01, End date: 2015-05-31

Project acronymLABORHETEROGENEITY

ProjectLabor Heterogeneity in Search Markets

Researcher (PI)Philipp Kircher

Host Institution (HI)EUROPEAN UNIVERSITY INSTITUTE

Call DetailsStarting Grant (StG), SH1, ERC-2011-StG_20101124

SummaryThe work laid out in this proposal aims to change our understanding of labor markets by viewing both the mobility as well as the frictions in the market as a consequence of long-term worker heterogeneity. Despite the advances in information technology which substantially reduce the costs of sending information (job advertisements, job applications) extracting the relevant information about worker quality remains hard. Long-term differences in ability coupled with screening frictions are proposed as the main reason for mismatch, for mobility, and for the presence of unemployment.
The proposal is based on novel empirical observations on occupational mobility. Both low-paid workers as well as high-paid workers in an occupation tend to leave it. The former tend to move to occupations with lower average pay, while the opposite holds for the latter. This happens even within firms, and after excluding managerial positions.
Most work on selection assumes that low-earners leave. This data suggest a novel angle: Workers have a long-term type that affects productivity in their current and in new occupations. They might accumulate human capital, but also their baseline ability is imperfectly known. Unexpectedly low performers (low-wage workers) have to leave towards less demanding tasks, while high performers change to more demanding tasks. This consistently accounts for the observed selection patterns.
When workers know more about their ability than new firms, this also explains unemployment: firms spend efforts on screening, and impose costs on workers to induce them to self-select. The latter counteracts exogenous reductions in workers’ search costs. The aim is to develop a tractable model of screening unemployment that can serve as a building block in larger macro-labor models, and to assess the work of the government employment agency through the lens of a mechanism designer that facilitates match-making but relies on firms for additional screening of the unemployed.

The work laid out in this proposal aims to change our understanding of labor markets by viewing both the mobility as well as the frictions in the market as a consequence of long-term worker heterogeneity. Despite the advances in information technology which substantially reduce the costs of sending information (job advertisements, job applications) extracting the relevant information about worker quality remains hard. Long-term differences in ability coupled with screening frictions are proposed as the main reason for mismatch, for mobility, and for the presence of unemployment.
The proposal is based on novel empirical observations on occupational mobility. Both low-paid workers as well as high-paid workers in an occupation tend to leave it. The former tend to move to occupations with lower average pay, while the opposite holds for the latter. This happens even within firms, and after excluding managerial positions.
Most work on selection assumes that low-earners leave. This data suggest a novel angle: Workers have a long-term type that affects productivity in their current and in new occupations. They might accumulate human capital, but also their baseline ability is imperfectly known. Unexpectedly low performers (low-wage workers) have to leave towards less demanding tasks, while high performers change to more demanding tasks. This consistently accounts for the observed selection patterns.
When workers know more about their ability than new firms, this also explains unemployment: firms spend efforts on screening, and impose costs on workers to induce them to self-select. The latter counteracts exogenous reductions in workers’ search costs. The aim is to develop a tractable model of screening unemployment that can serve as a building block in larger macro-labor models, and to assess the work of the government employment agency through the lens of a mechanism designer that facilitates match-making but relies on firms for additional screening of the unemployed.

SummaryThis project aims at providing novel foundations for the aggregate supply and demand blocks of current macro models, which are extensively used for policy evaluation. On the aggregate-supply side, the first part of the proposal is motivated by recent extensive and consistent empirical evidence on the presence of downward nominal and real rigidities in developed economies. The objective is to investigate the theoretical and empirical implications of including these rigidities in current macro models for: 1) the long-run relationships between inflation, unemployment and productivity growth; 2) the joint dynamics of inflation and unemployment; 3) the role of macroeconomic volatility in influencing these relationships; 4) the distribution of wages. From the policy perspective, several key implications would be examined in terms of the optimal inflation rate and the appropriate degree of stabilization policies. The second part of the proposal deals with the aggregate-demand side of current models and particularly with the specification of the stochastic discount factor. It is a well-known fact that macro models are unable to match the asset-price implications of the data. These shortcomings are more pronounced in open-economy models since the stochastic discount factors also determine the cross-country distribution of wealth and the portfolio allocations. The project will: 1) document the failures of standard preferences in accounting for several puzzles; 2) study whether there exists some stochastic discount factor that can be consistent with the data and with no-arbitrage theories; 3) add a macro structure on this stochastic discount factor while maintaining its consistency with data. In reference to the latter point, particular attention will be devoted to near-rational theories of optimizing behaviour in which the distortions in the subjective probability distributions can be related to macro variables through an optimizing model.
Finally, the research under this proposal will integrate the findings of part 1) and part 2) of the project to propose more realistic frameworks in which it is possible to investigate how investment and consumption decisions change when agents’ evaluation of future contingencies is distorted or uncertain. In particular, the project aims at investigating how monetary policy should be set when agents fear model misspecification, which manifests itself thorugh considerable and realistic premia in holding risky assets.

This project aims at providing novel foundations for the aggregate supply and demand blocks of current macro models, which are extensively used for policy evaluation. On the aggregate-supply side, the first part of the proposal is motivated by recent extensive and consistent empirical evidence on the presence of downward nominal and real rigidities in developed economies. The objective is to investigate the theoretical and empirical implications of including these rigidities in current macro models for: 1) the long-run relationships between inflation, unemployment and productivity growth; 2) the joint dynamics of inflation and unemployment; 3) the role of macroeconomic volatility in influencing these relationships; 4) the distribution of wages. From the policy perspective, several key implications would be examined in terms of the optimal inflation rate and the appropriate degree of stabilization policies. The second part of the proposal deals with the aggregate-demand side of current models and particularly with the specification of the stochastic discount factor. It is a well-known fact that macro models are unable to match the asset-price implications of the data. These shortcomings are more pronounced in open-economy models since the stochastic discount factors also determine the cross-country distribution of wealth and the portfolio allocations. The project will: 1) document the failures of standard preferences in accounting for several puzzles; 2) study whether there exists some stochastic discount factor that can be consistent with the data and with no-arbitrage theories; 3) add a macro structure on this stochastic discount factor while maintaining its consistency with data. In reference to the latter point, particular attention will be devoted to near-rational theories of optimizing behaviour in which the distortions in the subjective probability distributions can be related to macro variables through an optimizing model.
Finally, the research under this proposal will integrate the findings of part 1) and part 2) of the project to propose more realistic frameworks in which it is possible to investigate how investment and consumption decisions change when agents’ evaluation of future contingencies is distorted or uncertain. In particular, the project aims at investigating how monetary policy should be set when agents fear model misspecification, which manifests itself thorugh considerable and realistic premia in holding risky assets.